Mongolian officials opened the 233-kilometer-long Tavan Tolgoi-Gashuunsukhait railway on September 9, 2022.
This is a significant step in Mongolia’s ambitions to become China’s leading supplier of high-quality coal from the Tavan Tolgoi mine, which has more than six billion tonnes of coal reserves.
The trans-border railway will make shipping Tavan Tolgoi’s high-quality steel-making coal to china faster and less expensive. Mongolia believes that the fully operating rail line will be able to deliver up to 50 million tonnes of cargo by 2024, reducing transportation costs by three to four times.
There is, however, a catch. The Tavan Tolgoi rail gauge is Russian (1.52 meters) and coal freight must be reloaded onto the Chinese 1.4 meter-wide rail at the Ganqimaoudu border port for $3 per tonne. The Ganqimaoudu loading terminal is scheduled to open next year.
Mongolia chose non-Chinese railway standards since its trans-Mongolian rail network is partly owned by Russia. Russian railways are key to Mongolia’s aspiration to become a vital transit route for a wide range of raw materials to China and access to the sea.
The Tavan Tolgoi railway would let Mongolia shift commodity shipments from trucks to trains boosting commodity exports while alleviating Chinese border officials’ fears about COVID infections through physical contact.
Thousands of high-paid coal truck drivers may lose their jobs as a result of the new railway, but the road and transport minister has stated that coal trucks will continue to run parallel to rail transit. Furthermore, coal trucking has not been a transparent business, and regulators are investigating a bribery accusation involving logistical businesses in the coal industry.
Mongolia has yet to reap the benefits of above-average commodity prices, while international coal prices hover above $400 per tonne.
Since COVID, the government has been unable to ship commodities in large quantities because of border restrictions in China. The country produced a record-high 51 million tonnes of coal before COVID in 2019, with total reserves of 33.2 billion tonnes.
Mongolia contributed for 26 percent, or 14 million tonnes, of China's coal imports last year. The Mining Ministry forecasts this year’s coal export would be 18 million tonnes.
The greatest risk to Tavan Tolgoi coal exports is China's weak coal demand and the country's broader economic downturn.